2018 (11) TMI 227 - AT - Service Tax

Liability of service tax - payments made to foreign associates for services procured from them - reverse charge mechanism - Revenue was of the opinion that the respondent has received various services from persons situated outside India - Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 read with Rule 2(1)(d)(iv) of the said Rules. Held that - The Finance Act, 1994 was amended to include the provision of Section 66A specifically providing for such a scenario - the service tax liability on taxable services provided by a person located outside India to a recipient in India would arise only w.e.f. 18.04.2006 i.e. the date of enactment of Section 66A ibid - there is no infirmity in the order passed by the lower authority in dropping the demand for service tax up to 17.04.2006. Service rendered during the period 18.04.2006 to 31.03.2007 - Held that - Sub-rule 3(i) & 3(ii) does not appear to have any application in relations to services in dispute. But it is required to be examined whether the services rendered by the foreign associates during the period would qualify under sub-rule 3(iii). It needs to be determined whether respondent is the recipient of such services though there is no dispute that such services have been rendered abroad and the payments for such services have been made by the respondent to the foreign service providers. The matter is required to be remitted back to the adjudicating authority for redetermination of the demand - appeal allowed by way of remand.

Summary

Issues Involved:
Revenue's appeal against dropping of service tax under reverse charge mechanism for the period 2002-2003 to 2006-2007.

Analysis:
1. The Revenue filed an appeal against the dropping of service tax under the reverse charge mechanism for the period 2002-2003 to 2006-2007. The dispute arose from the respondent's failure to pay service tax on services received from foreign entities. The Revenue contended that the respondent should be liable for service tax on a reverse charge basis for such services. The Adjudicating Authority dropped most of the demand but ordered payment of service tax amounting to ?1,64,542. The Revenue challenged this decision, arguing that certain services received by the respondent from abroad should be subject to service tax under the reverse charge mechanism.

2. The Revenue's arguments were based on a circular issued by the CBEC and the interpretation of the Taxation of Service Rules, 2006. The Revenue claimed that the Commissioner had not properly analyzed the demand in relation to certain services provided by foreign entities but used by the respondent in India for business purposes. The Revenue contended that the Commissioner's order needed modification to include the demand for service tax for the period from 18.04.2006 to 31.03.2007.

3. On the other hand, the respondent argued through senior counsel that no service tax liability under the reverse charge mechanism should apply up to 17.04.2006. Even for the period 18.04.2006 to 31.03.2007, the respondent should not be liable for service tax. The respondent highlighted that the disputed services were rendered by foreign associates in overseas areas and did not fall under the categories specified in the Taxation of Service Rules, 2006 for liability under the reverse charge mechanism.

4. The Tribunal examined the agreements between the respondent and foreign associates during the disputed period. It noted that the service tax liability for services provided by a person located outside India to a recipient in India only arose from 18.04.2006 onwards, as per the Finance Act, 1994. The Tribunal found no issue with the dropping of the demand for service tax up to 17.04.2006 based on the Supreme Court's decision.

5. The Tribunal considered the provisions of the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 to determine the applicability of the reverse charge mechanism for the disputed services. It analyzed the relevant sub-rules and concluded that the matter required remittance back to the adjudicating authority for redetermination of the demand for the period 18.04.2006 to 31.03.2007. The adjudicating authority was directed to reexamine the services with reference to the rules and pass a fresh order, allowing the respondent an opportunity to present their perspective. Ultimately, the appeal was allowed by way of remand.